The purpose of this book is to provide individual investors who have as little as $1,000 to invest with the information necessary to earn a high return from investing in the stock market. Playing “the game” intelligently, as outlined in this book, will allow the small investor to earn a return better than most professional investors. Although the theories behind investment can be very complicated, the individual investor does not need to understand these theories in order to outperform the so-called experts. This book will show the reader the steps necessary to become a savvy investor and beat the pros. The good news is you can be a savvy investor and spend only a few minutes each year on your investment portfolio. It sounds almost too good to be true, but it is.
One of the most important things successful investors can do is concentrate on the variables they can control and not worry about the variables they cannot control. When constructing a stock portfolio, the two variables an individual investor can control are the costs associated with any investment and the risk related to an individual’s portfolio. Adjusting these two elements in an intelligent way can have a dramatic impact on the return earned from one’s investments, potentially adding hundreds of thousands of extra dollars to the investor’s investment account.
The cost of investing is an important element that an investor must consider. In general, when one pays a higher price for a product, one expects the product to be superior to a similar product that sells at a lower price. Empirical evidence from the mutual fund industry demonstrates this is not always the case in the investment world. Some of the best mutual funds charge 1/10 as much as their higher-priced competitors and have investment returns that are at least as good over long periods of time. These savings from lower management fees will go directly to the investor and can have a dramatic impact on one’s net worth. This book will help investors choose mutual funds that have very low fees with returns equal to or greater than peer mutual funds.
The second element investors have under their control is the amount of risk in their portfolio. History has shown that the more risk investors take, the higher the return they should expect. Each individual has a different tolerance for risk. For example, assuming everything else is equal, someone with a longer planning horizon (i.e., a young person) should have a higher risk tolerance than a person with a shorter planning horizon; a person who has a high stable income should have a higher risk tolerance than a person who has a lower income and is subject to periodic layoffs. Although there is no correct answer to how much risk one should accept (no one knows you better than you), it is the most consequential decision an investor has to make. It has been shown that more than 90% of the return an investor makes over time is determined by the risk that investor has in their portfolio. No risk, no return; high risk, high return. Or as economists might say, “There is no ‘free lunch.’ ”
I am writing this book so my children, grandchildren, and readers can be savvy investors. Remember to focus on the variables you can control!
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